Most of the questions are from readers whose credit scores have taken a hit due to bankruptcy filing or missed payments and delinquent accounts. Their scores are normally in the 500 or low 600 range. While anyone can improve their credit scores by 100 points, how fast the improvement comes is uncertain, but there are circumstances where rapid improvement is possible. We’ll explore this later in this post.
While there are many factors that affect your credit score, the major credit bureaus have suggested that the following factors are the most important in improving your credit score.
According to Experian 1 , late payments, delinquent accounts and accounts that have been sent to collections have a huge impact on credit scores. Making sure you pay all your bills on time is imperative in increasing your credit score.
Setting email reminders with your creditors, or mobile text alerts and even using the autopay feature will help in this regard.
Revolving credit includes credit cards and home equity lines of credit. TransUnion 2 recommends having a balance of no more than 35% of your available credit (ie credit utilization ratio of less than 35%). Once again, this is intuitive. A potential creditor will want to know how much debt you are carrying.
That means if you carry a balance on your credit card that is close to your credit limit, paying off your balance will go a long way towards improving your credit score. In fact, if you have any credit card debt or still have an outstanding balance on your home equity line of credit, paying down those balances is the best thing you could do. The feeling of not have revolving debt will probably outweigh any improvements in your credit score.
Cleaning Up Incorrect Negative Reports – While paying your bills on time and paying off your credit card debts will improve your score, cleaning any incorrect negative information on your credit reports can rapidly improve your credit score.
Negative items can appear on your report for a variety of reasons but once they are removed (assuming they are incorrect), improvements in your score happen quickly.
Improving Credit After Bankruptcy – For those that have emerged from bankruptcy, there are two things you have to do and be mindful of to improve your credit score quickly. The first thing you have to do is to start rebuilding your credit.
That may actually mean opening new credit accounts 2 . Secured credit cards are one way for bankruptcy filers to obtain credit and begin rebuilding immediately.
But more importantly, folks who have been through BK are prone to have lots of errors in their credit reports. Debts that should have been discharged in bankruptcy may still appear. Their debts many have been sold multiple times to various collectors who are unaware that those debts have been discharged. In fact, you have to be even more diligent in monitoring your credit report up to about two years after your BK because of potential errors in reporting. Getting errors removed from your credit reports is one sure way to ensure that your scores improve as quickly as possibly.
Improving Credit Because of Late Payments and Delinquent Accounts – Raising your credit score quickly from delinquent accounts is slightly different from the previous situation. Delinquent accounts stay on your account for seven years and there is nothing you can do to remove it.
However, if you still owe money, there might be a couple of things you could do to help prevent further damage to your credit report. Credit bureaus tend to report the status of your delinquent accounts with certain codes. In this case, it ranges from R1 to R9. The best code is R1, which indicates the account has always been paid on time. R2 means you have been late for 30 days, R3 for 60 days and R4 for 90 days. The worst is R9, which is charged off debt.
The key here is trying to prevent a “charge off” to your account because it does not matter whether a charge off is paid in full or partially settled. It is very detrimental to credit scores. The best course of action here is to try to work out a payment plan with your creditors and pay it off over time.
Conclusion – It is obviously possible to raise your credit score by 100 points. How fast it happens depends on various circumstances. The foundation of having good scores are paying your bills on time and having a very low balance on revolving credit.
Removing inaccurate negative items on your credit report can improve your scores very quickly if that is the cause for the drop in scores.
For those who have just emerged from bankruptcy, establishing new credit lines (like a secured card) is the quickest way to rebuild one’s credit. Checking for errors on credit reports is also a full time job since they are most likely to occur as old debt gets sold to other collection agencies.
For those whose credit has been hit because of late payments, negotiating with your creditors and getting your accounts reported as paid off or settled is a more palatable alternative than being charged off.